Cyprus & World News

BANKING: Moodys sees Bank of Cyprus UK sale as credit positive

16 July, 2018

Rating agency Moody’s welcomes the sale of Bank of Cyprus’ UK subsidiary for €117 mln as credit positive, with the lender in a better position to focus on reducing its high stock of problem loans.

Bank of Cyprus announced last week it had agreed to sell its UK subsidiary to Cyenergy Capital Ltd, owned by a consortium of UK-based venture capitalists for €117 mln leaving an accounting profit of €3 mln.

The sale is expected to increase Bank of Cyprus’ CET1 Capital by around 65 basis points to 12.65% as of March 2018, Moody’s said on Monday

“The sale of UK operations amid Brexit uncertainty will allow Bank of Cyprus` management to focus on tackling its domestic operation`s significant asset quality issues.

The increased capital strengthens the bank’s balance sheet and increases the chances of a possible sale of problem loans, which management is exploring,” Moody’s said in its Credit Outlook.

It noted that Bank of Cyprus` organic non-performing exposures (NPEs) were down 45% to €8.35 bln as of March 2018 from a peak of €15.2 bln in March 2015.

It cautioned however, that the bank’s NPEs to gross loans remains among the highest of Moody’s-rated banks and is a key credit challenge, while the stock of provisions against these troubled loans, at around 50%, is relatively low.

Due to the UK loan book`s better quality, Moody’s estimates that the bank’s pro forma NPE/gross loan ratio as of March 2018 will increase to 49.6% from the 44.9% reported in the first-quarter of the year.

Nevertheless, the agency added, the bank maintains its target for the ratio`s decline to below 40% by year-end and below 25% over the next three years, excluding any possible accelerated risk-reduction transactions that the bank is currently exploring. 

The sale of the UK operation continues the bank’s deleveraging trend since 2012, although the bank`s size will remain significant relative to Cyprus` economy.

It will also reduce Bank of Cyprus` total assets by around €2 bln to €21.4 bln, around 110% of the island’s GDP, Moody’s said.

The sale to Cynergy Capital is expected to be completed by the end of 2018 and is subject to approval by Cyprus and UK regulators.

Last week, group CEO John Patrick Hourican called it another “another positive step in our journey back to strength”.

The bank said the decision to sell it seven UK offices is in line with BOC’s strategy of delivering value for shareholders and focusing principally on supporting the growing Cypriot economy.

Once the deal is complete, BOC UK is expected to be rebranded “Cynergy Bank”

Cynergy is a consortium of experienced business owners in the UK, focused on the retail and SME sectors.

It is led by a consortium comprising Pradip Dhamecha (OBE), Balbinder (Bal) Sohal, John Coulter and Ann Jones.

The UK subsidiary has gross loans of £1.52 bln (€1.73 bln) accounting for 9% of Group total gross loans and deposits of £1.66 bln (€1.89 bn) representing 11% of total deposits.